Mutual Investment Club of Cornell Week 1: Financial Accounting Feb. 3, 2010.

Slides:



Advertisements
Similar presentations
Chapter 12 The Statement of Cash Flows
Advertisements

Robert Libby Patricia A. Libby Daniel G. Short
The Statement of Cash Flows
© 1999 by Robert F. Halsey In this chapter, we will cover the four financial statements that are provided by companies to shareholders and other interested.
Chapter 3.
The Statement of Cash Flows Chapter 12. The statement of cash flows reports the entity’s cash flows (cash receipts and cash payments) during the period.
Chapter 13  Cash Flow Statements. Chapter 13Mugan-Akman Cash Flow Statement based on cash accounting amount of net income in a period is usually.
Statement of Cash Flows COPYRIGHT ©2007 Thomson South-Western, a part of the Thomson Corporation. Thomson, the Star logo, and South-Western are trademarks.
STATEMENT OF CASH FLOWS
Copyright © 2007 Prentice-Hall. All rights reserved 1 The Statement of Cash Flows Chapter 16.
Accounting Basics: Agenda Introduction to Financial Statements – Balance Sheet – Income Statement – Statement of Cash Flows Metrics and Ratios.
FINANCIAL STATEMENTS.
Financial Statements & Analysis
17-1 Learning Objectives After studying this chapter, you should be able to: [1] Indicate the usefulness of the statement of cash flows. [2] Distinguish.
12-1 STATEMENT OF CASH FLOWS Financial Accounting, Sixth Edition 12.
Overview of Statement of Cash Flows
Statement of Cash Flows
Finance and Accounts Analysing Accounts Pr. Zoubida SAMLAL.
STATEMENT OF CASH FLOWS Accounting Principles, Eighth Edition
Statement of Cash Flows The Statement of Cash Flows provides relevant information about the cash receipts and cash payments of an enterprise during a period.
Part 6 Financing the Enterprise © 2015 McGraw-Hill Education.
Mutual Investment Club of Cornell Week 1: Financial Accounting Sept. 8, 2010.
Reporting and Analyzing Cash Flows Chapter 17. Purposes of the Statement of Cash Flows Designed to fulfill the following: – predict future cash flows.
Managerial Accounting Preparing and Using the Statement of Cash Flows Chapter 17.
Accounting Principles, Ninth Edition
©The McGraw-Hill Companies, Inc. 2006McGraw-Hill/Irwin Chapter Twelve Statement of Cash Flows.
3.5 Financial Accounts Chapter 22. What are ACCOUNTS? Financial records of business transactions which provide information to groups within and outside.
13–1 Chapter 13 The Statement of Cash Flows. 13–2 Copyright © Cengage Learning. All rights reserved. Statement of Cash Flows Shows how a company’s operating,
1 Chapter 12 The Statement of Cash Flows Financial Accounting, Alternate 4e by Porter and Norton.
©2006 Prentice Hall Business Publishing Financial Accounting, 6/e Harrison/Horngren 1 The Statement of Cash Flows Chapter 12.
24-1. The Statement of Cash Flows Section 1: Sources and Uses of Cash Chapter 24 Section Objectives 1.Distinguish between operating, investing, and financing.
13-1 Preview of Chapter 13 Financial and Managerial Accounting Weygandt Kimmel Kieso.
Copyright © 2007 Prentice-Hall. All rights reserved 1 Statement of Cash Flows Chapter 13.
STATEMENT OF CASH FLOWS Accounting Principles, Eighth Edition
STATEMENT OF CASH FLOWS Managerial Accounting, Fourth Edition
Chapter Indicate the usefulness of the statement of cash flows Distinguish among operating, investing, and financing activities Prepare.
© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin STATEMENT OF CASH FLOWS Chapter 13.
Chapter 14 The Statement of Cash Flows
© 2006 Prentice Hall Business Publishing Introduction to Financial Accounting, 9/e © 2006 Prentice Hall Business Publishing Introduction to Financial Accounting,
17-1 Learning Objectives After studying this chapter, you should be able to: [1] Indicate the usefulness of the statement of cash flows. [2] Distinguish.
Financial Accounting, Seventh Edition
Chapter 15 The Statement of Cash Flows: Reporting and Analyzing.
Chapter 2 Introduction to Financial Statement Analysis.
Financial Accounting Fundamentals
Financial Statements for a Corporation Chapter 19.
MGT 497 Financial Statements Prof. Rick Hayes, Ph.D., CPA.
Chapter 2 Introduction to Financial Statement Analysis.
Primary Objective of Financial Reporting Invest?? Borrow $$?? Sell stocks or bonds?? Start new business?? Loan $$?? Extend credit $$?? LO1 Provide information.
1 Chapter 1 Accounting as a Form of Communication Financial Accounting 4e by Porter and Norton.
22–1 McQuaig Bille 1 College Accounting 10 th Edition McQuaig Bille Nobles © 2011 Cengage Learning PowerPoint presented by Douglas Cloud Professor Emeritus.
CHAPTER 14 Statement of Cash Flows. The McGraw-Hill Companies, Inc. 2008McGraw-Hill/Irwin 14-2 Reporting Format for the Statement of Cash Flows The Statement.
Chapter 12 The Statement of Cash Flows Using Financial Accounting Information: The Alternative to Debits and Credits, 6/e by Gary A. Porter and Curtis.
13-1 Preview of Chapter 13 Financial and Managerial Accounting Weygandt Kimmel Kieso.
12-1 STATEMENT OF CASH FLOWS Accounting, Fifth Edition 12.
Chapter Chapter 13-2 CHAPTER 13 STATEMENT OF CASH FLOWS Managerial Accounting, Fourth Edition.
Page 13-1 UNIT 8 SEMINAR STATEMENT OF CASH FLOWS CHAPTER 13.
© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin Statement of Cash Flows Chapter Twelve.
McGraw-Hill/Irwin Copyright © 2004 by The McGraw-Hill Companies, Inc. All rights reserved. 2-0 Corporate Finance Ross  Westerfield  Jaffe Seventh Edition.
Purpose of the Statement of Cash Flows  Explains changes in cash over a period of time  Summarizes cash inflows and outflows from: Operating Activities.
The Statement of Cash Flows
PreviewofCHAPTER17.
The Statement of Cash Flows
12 Introduction to Financial Accounting Information, 7/e The Statement
Understanding a Firm’s Financial Statements
Chapter 11 Statement of Cash Flows
(2) Statement of Cash Flows
Accounting, Fifth Edition
X100 Introduction to Business
Presentation transcript:

Mutual Investment Club of Cornell Week 1: Financial Accounting Feb. 3, 2010

Mutual Investment Club of Cornell Schedule WeekTopic 1Financial Accounting 2Conducting Research and Basic Ratios 3Macroeconomics and its Importance 4DCF Analysis, Trading Comps and Basic Excel 5Technical Analysis 6Options Trading 7Presentation Skills 8Mock Pitches

Mutual Investment Club of Cornell For today…  Introduction to accounting  Three financial statements  Balance Sheet  Income Statement  Cash Flow Statement  Financial Reports  10-K  10-Q

Mutual Investment Club of Cornell What is Financial Accounting?  Accounting is a system for recording financial information about a business and reporting it to decision makers  Financial accounting refers specifically to accounting for external decision makers: creditors, investors, suppliers, etc.  This is what we care about. Introduction Balance Sheet Income Statement Cash Flows10-K/Q

Mutual Investment Club of Cornell The Balance Sheet  A list of the assets and liabilities of the firm at a particular time.  Can be thought of as a “snapshot” of the business at one point in time.  Three major components  Assets: resources of the firm  Liabilities: things the firm owes to others  Stockholder’s equity: Everything else Money investors put in or have reinvested from earnings. Introduction Balance Sheet Income Statement Cash Flows10-K/Q

Mutual Investment Club of Cornell Balance Sheet: XOM Introduction Balance Sheet Income Statement Cash Flows10-K/Q

Mutual Investment Club of Cornell The details  Current Assets are those that will be used up or can be sold within one year.  Current Liabilities have a maturity of less than one year.  Assets  Investments: Money the firm has invested in other companies (usually when it is sitting on a pile of cash)  Receivables: Money owed to the firm by others (usually customers) Introduction Balance Sheet Income Statement Cash Flows10-K/Q

Mutual Investment Club of Cornell The details  Liabilities  Accounts payable: money owed by the firm to suppliers, usually  Deferred Long-term liability charges: a collection of future liabilities of the firm.’  Stockholder’s equity  Common stock: money that investors have invested in the business.  Retained earnings: money that has been reinvested in the business from its profits. Introduction Balance Sheet Income Statement Cash Flows10-K/Q

Mutual Investment Club of Cornell Things to Notice  The Accounting Equation always holds  Assets = Liabilities + Stockholder’s Equity  Why?  Balance sheet items are recorded at the cost to acquire them, not at market value (for now).  The balance sheet is valid for a single date.  Note: All financial statements have notes accompanying them that explain some numbers. Introduction Balance Sheet Income Statement Cash Flows10-K/Q

Mutual Investment Club of Cornell The Income Statement  Statement showing revenues and expenses over a period.  Can be thought of as a continuous video of the firm over time.  Revenue is NOT the same as cash inflow and expenses are NOT the same as cash outflow.  More on that soon   Income Statement: XOM Introduction Balance Sheet Income Statement Cash Flows10-K/Q

Mutual Investment Club of Cornell Amount paid for goods sold over the period (aka Cost of Goods Sold) Op. expenses are those incurred in the normal operations of the business. Calculating operating income or loss is important for determining income tax Interest expense is not considered an operating expense: it does not relate to the normal operations of the business. Introduction Balance Sheet Income Statement Cash Flows10-K/Q

Mutual Investment Club of Cornell Why distinguish operating income/loss?  When examining a business, we want to be able to determine how much profit it can make from the business itself.  Interest expense adds noise: it reflects how the firm is financed, not how it operates. If we bought the business, we might radically change its capital structure, so we want to see a picture of the business that is independent of that. Introduction Balance Sheet Income Statement Cash Flows10-K/Q

Mutual Investment Club of Cornell Profit ≠ Cash Flow: example 1  The firm sells some inventory to a customer on credit, due next month.  Is that profit? Yes (assuming the customer will pay).  Is that cash flow? No.  In accounting, revenue is recorded when earned, not when cash is received. Introduction Balance Sheet Income Statement Cash Flows10-K/Q

Mutual Investment Club of Cornell Profit ≠ Cash Flow: example 2  A firm uses its cash reserves of $10,000,000 to buy a plant, and uses the plant to generate $2,000,000 of cash per year for 10 years.  It would not be very useful to say the firm had a loss of $10 m in the first year, and $2 m profit thereafter, even though that is our cash flow.  Instead, we can classify the purchase as an investing activity and include the cost of the plant as an expense over time as it is used  This is a process called “depreciation.” Introduction Balance Sheet Income Statement Cash Flows10-K/Q

Mutual Investment Club of Cornell The Cash Flow Statement  Provides a summary of cash inflows and outflows over a specified period of time.  Like the income statement, it can be thought of as a continuous video over time.  This is the statement we care most about, as predicting future cash flows is the most important aspect of investing in stocks. Introduction Balance Sheet Income Statement Cash Flows10-K/Q

Mutual Investment Club of Cornell Cash Flow Statement: XOM Operating Cash Flow (OCF) is calculated by making adjustments to Net Income for non-cash items on the income statement and balance sheet. Not that important exactly how this is done, but just know that OCF is calculated indirectly from Net Income ICF includes purchase and sale of plant, equipment, land, etc. and other investments. FCF includes inflows and outflows related to financing the business. Inflows from investors and loans, outflows from paying dividends and paying debt. Net Change in cash balances Introduction Balance Sheet Income Statement Cash Flows10-K/Q

Mutual Investment Club of Cornell Why distinguish O, I, and F?  As before, we are interested in seeing how much cash the business is capable of generating through its normal (operating) activities.  Cash flows from investing and financing activities are typically unrelated to this; that is, they generate noise around what we are really looking for.  By looking at operating activities, we get a feel for what kind of cash the business can generate even if we change its financing and investing cash flows Introduction Balance Sheet Income Statement Cash Flows10-K/Q

Mutual Investment Club of Cornell Another word on Depreciation  Suppose a business spends $10 m on a plant that is used to generate $2 m in profit per year for 10 years.  The company might “depreciate” the plant by $1 m per year for 10 years.  This depreciation will count as an expense on the income statement, so the firm will show $1 m in profit per year.  In this way we spread the cost out over the useful life of the plant. Introduction Balance Sheet Income Statement Cash Flows10-K/Q

Mutual Investment Club of Cornell Reports  Released annually and quarterly  Mandated by the Securities & Exchange Commission (SEC). Introduction Balance Sheet Income Statement Cash Flows10-K/Q

Mutual Investment Club of Cornell Reports  Annual report includes:  Non-financial section Discusses the company and its operations  Financial section The main financial statements Financial history for 5 or 10 years Management’s discussion Other minor things  Quarterly report  Less rigorous than annual report  Unaudited Introduction Balance Sheet Income Statement Cash Flows10-K/Q

Mutual Investment Club of Cornell SEC Filings  Form 10-K: annual  Everything in the annual report  More detailed description of the business  Etc.  Form 10-Q: Quarterly  Everything in the quarterly report  More detailed description of the business  Etc. Introduction Balance Sheet Income Statement Cash Flows10-K/Q

Mutual Investment Club of Cornell Why do reports and filings matter?  They are an excellent first source when evaluating a company.  They contain detailed information about the company’s financial and non-financial history, operations, management, etc.  If you want to learn more about a company, pull up its annual report and see what you find. Introduction Balance Sheet Income Statement Cash Flows10-K/Q

Mutual Investment Club of Cornell Questions?

Mutual Investment Club of Cornell Further Information  Books  Financial Accounting by Libby, Libby & Short  Courses at Cornell  AEM 2210  HADM 2210  ORIE 3150

Mutual Investment Club of Cornell See you next week!  Don’t forget to apply for a Junior Analyst position. 